Microcredit: Lifeline of a Farmer

“When combined with information and communication technology, microcredit can unleash new opportunities for world’s poorest entrepreneurs and thereby revitalize the village economies they serve.” This line given by Madeleine Albright and John Doerr clearly explains the importance of microcredit. Microcredit is basically the provision of thrift, credits and other financial benefits to the very poor in the society. This in turn gives them the ability to be independent and take good care of their families. Microcredit is a way of creating entrepreneurship among the poor. These people do not even have the minimal qualifications to receive traditional credit. It is actually a part of microfinance, which deals with the provision of financial services to the poor. The Microcredit Summit Campaign was held in 1997 with an aim “ to launch a global campaign to reach 100 million of the world’s poorest families, especially the women of those families, with credit for self-employment and other financial and business services by the year 2005”. So, basically the campaign was to target poor women, who don’t get to go out and work. With micro credits, they could get self-employed and look after their families better.

In 2003, the Microcredit Summit Campaign reported that women clients accounted for 82.5% of the total number of ‘poorest’ clients. This shows that the campaign was successful in reaching out to its main target. Microcredit is known to have originated with the Grameen Bank in Bangladesh. There the programme was very successful and is also slowly gaining importance in the mainstream finance industry. The UN declared the year 2005 as The International Year of Microcredit. In India , the National Bank for Agriculture and Rural Development(NABARD) finances more than 500 banks that lend funds to self help groups (SHGs) .An SHG is basically a registered or unregistered group of micro entrepreneurs having a homogenous background, saving small amounts, regularly, to mutually agree to contribute to a common fund to meet their emergency needs. An economically poor individual gains strength as part of a group. It also reduces the transaction costs for borrowers or lenders.SHG- bank linkage programme has emerged as a dominant dispensation model in India. The Reserve Bank of India is moving towards a system for providing effective policy support through different institutions, viz. banks, MFIs, NGOs , SHGs etc. to create a more vibrant finance dispensation environment in the country.

Microcredit is not only provided in poor countries but also in the developed countries. Grameen Bank started operations in New York in the year 2008. Even in Russia, Canada etc. it is very popular. In the Forbes ranking of World’s Top 50 Microfinance Institutions, 7 of 50 were from India. The magazine said , “microfinance has become a buzzword of the decade raising the provocative notion that even philanthropy aimed at alleviating poverty can be profitable to institutional and individual investors “. But there is also a darker side to it. Some women say that the loans have not transformed into any new income. They say that they used the money to pay for urgent expenses like children’s school fee etc. not for the intended purpose. I feel that the govt. will have to take strict measures to ensure that the microcredit loans are used to alleviate poverty in the right way; otherwise the entire purpose of the campaign goes waste. However, there are some countries that have done exceptionally well in this field. For example, Australia has recently supported microcredit organizations benefiting thousands of people in China, Sri Lanka , India, Indonesia, and Vietnam etc. So overall, positives score over the negatives. Hence, microcredits are an excellent way to remove poverty by giving hope to people for a better future. It is a strong tool for the socio- economic development of any country.

Sakshi Dhingra

[Image courtesy: http://www.flickr.com/photos/michaelfoleyphotography/392624523/]